Olawepo: How to Build Resilient, Sustainable Infrastructure in Nigeria

Chairman of Bresson AS, Mr. Gbenga Olawepo-Hashim, has said for Nigeria to take her pride of place in the comity nations, she must address the challenges of providing adequate funding, dismantle bureaucratic impediments and recalibrate the nation’s electricity sector.

The businessman, who spoke to Nigerian students at the Imperial College, London, also identified Man-Power challenges and lack of industrial base to locally produce the component of infrastructural facilities as some of the issues that the government must tackle to move toward the right direction.

Speaking on the topic “Nigeria: Facilitating Resilient and Sustainable Infrastructural Development”, he said: “The task of building a resilient infrastructure that will meet the developmental needs of the country are many but I will limit myself to five critical areas as I assume that this audience will be more interested in how to scale the hurdles than an exhaustive list of the problems.

“For our purpose I have identified;

i. Funding

ii. Administrative and Bureaucratic impediments to private sector participation in infrastructure development

iii. Man-Power challenges

iv. Lack of industrial base to locally produce the component of infrastructural facilities

v. Re-calibrating the Electricity Sector Reform.”

Speaking on item-by-item basis, he said on Funding that: “Though Nigeria has been severally referred to as a rich country whose income has been ravaged by rampant corruption accounting for its abysmal level of infrastructural development; this assumption is only half the truth. The revenue collected by the Federal Government, even when not stolen, is grossly inadequate to cater for a population of about 170 million people.

“During the season of high Oil price, the country’s total receivables from oil sales amounted to about $50 billion USD in twelve months. This revenue is comparable to the 2014 earnings of Disney World, Florida, USA which was a record $48 billion USD.

“Ancillary to the small revenue base of the country is the misapplication of the revenue collected through a consistent disproportionate allocation of about eighty per cent of revenue to recurrent expenditure leaving little or nothing for Capital Expenditure. Lack of funding for Infrastructure, Manufacturing and Industrialisation is compounded by the shallowness of the Nigerian Banking system. The existing banks have proved incapable of lending to Infrastructure and the real sector.

“Policy makers will have to examine whether it makes sense for Banks to hold licenses for merely charging a premium on the economy without adding the needed value for infrastructural growth and development of manufacturing. It may be time for decision makers to examine the propriety of encouraging successful global banking brands with reputation for infrastructure financing to bring more depth to the Nigeria banking sector.”

On Administrative and Bureaucratic Impediments to Private Sector Participation in Infrastructure Development, he said:n”There is no doubt that given the size of its market, the high rate of return that investment in Nigerian economy commands compared to other emerging markets, the country should be one of the best destination for private sector investment in infrastructure. The country also has clearly defined laws and institutions that spell out the path to private sector participation in the economy.

“Nigeria’s electricity sector reform Act 2005 for instance, is one of the most advanced reform laws in the emerging markets. Yet, the bureaucratic civil service, which most of the economic liberalization laws seek to keep out of the way of private sector investment, struggles every day to return to reckoning keeping investors applications for permits and licenses unattended to for years.

“Dismantling the unnecessary administrative red tapes and multiple agencies’ interventions in administrative processes is one of the simple but crucial step Nigeria must take immediately in order to receive the desired private sector investment in her ailing infrastructure.”

Dwelling on Man-power Challenges, the businessman revealed that: “Project developers in the country frequently bemoan the lack of qualified and technically competent hands for project implementation.

“The cost of engaging expatriate hands with requisite skill-sets is unsustainable and also creates cost over runs. There is an urgent need to reform educational curricular with a desire to emphasize the acquisition of technical skills required for the development of infrastructure and industrialization of the country. Particular attention must be paid to the development of middle level manpower such as welders, mechanics, builders with up to date certification in modern vocational training centres.

“The training of Accountants, Engineers, Lawyers with project development and management skills are also urgently required. The pool of qualified Engineers and other professionals of Nigerian decent in the diaspora are crucial to the task of building local manpower capacity for industrialization and development.”

Another challenge he spoke on is the “Lack of industrial base to locally produce the component of infrastructural facilities.”

He said: “It is trite fact that most modern infrastructure, machines tools and equipment are largely- after invention and design- a product of the coupling together of metals, iron, steel, glass, aluminium and petrochemicals. The absence of sufficient local production of these items means that a nation will be forever consigned to mass importation of finished goods at prohibitive cost and condemned to the status of a primary producer.

“This particular challenge of the Nigerian economy is perhaps its most fundamental impediment to industrialization and infrastructural growth. The quantity of steel produced in a country is a signal to its technological and industrial advancement. Nigeria currently produces only 2.5 million tonnes per year and imports about 17million tonnes – very low quantity produced and consumed- compared to other middle-income economies. Turkey produces 34 million tonnes per year, India 86.5million tonnes and Brazil 33.9m tonnes per year.”

On the challenge of re–calibrating the electricity sector reform, recommended that: “Building Sustainable Infrastructure and a new industrial economy is impossible without adequate electricity supply at the point of need. Most manufacturers’ particularly small-scale producers in Nigeria have had to bear huge cost through self-generation of electricity using diesel and petrol as fuel. The self-generating energy supplier mode has a price tag of N90/kw compared to N22/kw grid price of electricity.

“Given that prevailing interest rate to assess finance in Nigeria is 22% compared to 8.5% in South Africa, 7.8% in Egypt, China 3.4% and in the US 2.33%, the Nigerian manufacturer is already not competitive. The burden of high cost of production could be lighter if electricity supply can be assessed at the grid price on a stable basis and even at a price a little higher than the current grid cost.

“The electricity sector reform inaugurated by the 2005 Electricity Sector Reform Act in Nigeria was designed to address the challenges facing the sector with a view to making private sector the driver of investment and efficient management of the power sector. The reform rests on two legs; privatization of the existing utilities on one hand and the licensing of Private Independent Power Producers on the other.

“The participation of new Independent Power Producers (IPPs) in the sector are specially very crucial because whilst privatization of existing utilities merely transfers ownership to the new operators, it is the new greenfield IPPs that add capacity to the network. Unfortunately, in the past five years no new IPP has been commissioned in Nigeria. As a matter of fact last year no single turbine was imported to Nigeria and none has been imported this year, compared to 15 GE turbines that were shipped to Egypt this year alone.

“Ten years running, this reform has been hampered by the difficulties associated with the private sector participation in infrastructure development identified previously. The difference here is, the sense of urgency that the resolution of these issues in the power sector demands. They are questions to which answers cannot be delayed further; they must be addressed right now! Policy formulators only lament and sing the power inadequacy like a song and failing to take the practical executive actions that do not even require legislation to achieve.

“As an operator in this sector, I have outlined hereunder some immediate steps to be taken to recalibrate the power sector reform:

I. Dismantle the delay in licensing of IPPs and the signing of Power Purchase Agreement (PPA) through an executive guideline for the industry that defines Standard Operating Procedures for agencies and institutions. Processing license applications and signing of Power Purchase Agreements should not take more than 90-120 days. Currently it takes 2-3years when in fact, a complete Power Plant could be delivered between 18 -24 months.

II. Federal Government should make Sovereign Guarantee available to all PPAs that the Nigeria Bulk Electricity Trading Company (NBET) concludes and with the requisite 90-120 days LC to ensure bankability of such agreements.

III. Distribution companies and eligible customers, once licensed, should be able to sign PPA with the Generating Companies (GENCOs) and IPPs for the supply of Power without the undue meddlesomeness of the Nigeria Electricity Regulation Commission (NERC). This is the provision of the Electricity Sector Reform Act and this is what it should be.

IV. NERC should be professionalized and focused on effective regulation of the sector; meting out punishment for infractions in the sector rather than attempting to administer the sector as it is currently doing.

V. More attention should be paid to sanctioning operators particularly in the distribution sector who have not delivered on their terms of purchase of their network as the entire value chain depend on effectiveness at this level.

VI. A cost-reflective and fare electricity tariff must be put in place that guarantees reasonable return on investment and satisfies the consumer that he/she has been fairly charged. It is my assumption that an Industrial consumer will be willing to pay a reasonable price for what he/she consumes rather than spend N90/kw on self-generation. The wide spread use of pre-paid meter must be implemented immediately to make this regime work.